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Two fundamental analysis formulas have got me confused. One is the EPS (earnings per share) and the other is P/S (price/sales ratio).

If I understand the formulas correctly, EPS is calculated by dividing a company's after-tax profit by the number of the company's outstanding shares, while P/S is comparing the price to the company's sales revenue (by dividing the company's market capitalization by the total sales revenue booked for the previous year.

However, to me, "revenue" and "profit" seem synonymous, and therefore I do not see a difference in the two formulas.

Does anyone know what the difference is between the company's after-tax profit and sales revenue?

Thank you for any help, all help is greatly appreciated.

  • 4
    You will benefit from reading a basic introduction to accounting. You'll quickly discover revenue and profit are not synonymous, and many other useful concepts. These concepts will serve you well both as a professional in almost any career, as well as a future investor. – Chris W. Rea Mar 27 '15 at 13:25
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What if XOM has 400B in revenue and 40B in profit. Does a $360 billion difference sound synonymous to you ?

Revenue can most easily be thought of as the top line of an income statement or profit and loss statement. Revenue is the total amount of income generated by the sale of goods or services related to the company's primary operations.

Profit, conversely, is the infamous bottom line. This is called net profit, because it is the amount of income that remains after accounting for all expenses, debts, additional income streams and operating costs.

  • Very simple and well-communicated. Thank you for your answer. – Kelsey Mar 27 '15 at 5:03

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